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Can a company director claim redundancy when their company enters administration?

If an insolvent company enters liquidation, either compulsory or voluntarily, then it is often the case that the director will be in line for a redundancy payment. This is conditional on the director being on the payroll and the company having been incorporated for a minimum of two years.

Administration is a slightly different process, however, and the eligibility for claiming director redundancy is not quite as straightforward. This is because when a company enters administration there are two possible outcomes; either the company, or part of the company, will be sold and continue to trade; or should a buyer not be able to be found, or the company is beyond rescue, then a liquidator will be appointed and the company will be closed for good.

The insolvent company is liquidated

In the event of the company being liquidated following an administration procedure, then all employees including the director will be able to make a claim for redundancy as long as they meet the basic criteria. This is because the insolvent liquidation of a company is viewed as a necessary termination of employment and therefore employees and directors will be able to take compensation in the form of a redundancy pay-out.

Should the company be unable to finance these redundancies then they will instead be made by the Redundancy Payments Service (RPS) through the government’s National Insurance Fund. Any redundancy paid this way will be limited to statutory levels, which may well be lower than what is set out in an individual’s employment contract. After these payments have been made, the RPS then becomes a creditor of the liquidated company.

Company is sold out of administration

However, should the company be viable and the liquidator feels it has a good chance of being successful in the future, they will look at selling the business, or at least the profitable elements of it. It stands to reason that any deal in this vein will require the business to be restructured in some way. It is during this process that the existing director will either be made redundant by the liquidator or transferred to the new company through a process known as the Transfer of Undertakings (Protection of Employment) or TUPE.

Under these rules all employees, including the directors, must be taken on by the purchasing company and their employment rights protected. However, at this stage the director has the option to resign or to take redundancy if this is offered. If a director resigns at this stage or at any other point, then they are seen as intentionally making themselves unemployed and will fail to qualify for redundancy. However, if the purchasing company offers the existing director redundancy then it is the purchasing company who will need to pay for any redundancy package offered.

In summary

Essentially you must be made redundant, whether this is by the liquidator or by your company becoming insolvent, in order to claim a redundancy payment. Administration can be a complex process, and your right to claim redundancy will depend not only on the direction your business takes as a result of this process but also where this leaves you in relation to it. Redundancy Claim are experts in helping directors navigate this often complicated area, and can ensure you claim everything you are entitled to following your company entering administration. Call us today on 0800 063 9261 to learn more about your eligibility for director redundancy, or to start your claim.

Many directors don't consider themselves to meet the criteria and don't claim when they have a legitimate right to.

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